October 11, 2007
Coors and Miller Brew Up a Second Beer Giant
By Tom Ryan
Molson Coors and SABMiller, the nation’s number two and three brewers, have formed a joint venture to better do battle against the King of Beers.
The combination, to be called MillerCoors, will control about 29 percent of the American market, compared with 49 percent for Anheuser-Busch. Miller Brewing has about 19 percent share, and Molson Coors, about 11 percent. Under the arrangement, SABMiller will have 58 percent of the joint venture, and Molson Coors, 42 percent. The merger does not include SABMiller’s large international operations nor the Molson Coors business in Canada.
The merger comes amidst flat domestic beer sales as consumers have switched to wine, spirits and craft beers and imports. The two sides said they will be able to invest more in marketing their brands to consumers and compete more effectively with larger brewers like Anheuser-Busch and InBev NV S.A., which imports a large number of global beers into the U.S. and is the world’s largest brewer by volume.
“This makes us a much more capable competitor up against the really changing landscape,” W. Leo Kiely III, chief executive of Molson Coors, said in a statement. “It is clear Miller and Coors will be a stronger, more competitive U.S. brewer than either company can be on its own.”
Besides annual cost savings estimated at $500 million, the merger promises to bring U.S. consumers more choice, greater product availability and increased innovation. MillerBeer’s portfolio will include domestic brews like Coors Light and Milwaukee’s Best; imports including Peroni, Molson and Pilsner Urquell; craft varieties including Leinenkugel’s and Blue Moon; and specialty beers like Miller Chill and Killian’s.
Benj Steinman, editor of Beer Marketer’s Insights, told USA Today he believes MillerCoors will be able to better capitalize on growing demand for craft and premium beers.
“They are each playing a little more effectively in the high end of the portfolio, which is where the market seems to be going,” said Mr. Steinman. “You can bet they will be going after that segment more.”
But the biggest benefit appears to be gaining more muscle to negotiate better deals from advertising all the way to retail.
“It’s going to give them substantially more scale, which helps them with their retailers and their distributors and helps erode Anheuser Busch’s No. 1 competitive advantage, which is their 50 share,” Kaumil Gajrawala, an analyst at UBS Securities, told The New York Times.
But the greater scale – combined with Budweiser’s dominance – is one reason some believe gaining antitrust approval for the merger may be difficult.
“What does the consumer get out of this? Less selection and probably higher prices,” said Tom Pirko, president of the beverage consulting firm Bevmark, told the Times. He said beer pricing has long been driven by “hellacious” competition among the three competitors. “People are sailing along blindly, thinking that this is going to be easy.”
Discussion Question: What benefits do you see from the merger of Miller and Coors? Do you think it puts them in a better position to compete against Anheuser-Busch? Should retailers and consumers be concerned about the prospect of two companies controlling almost 80 percent of the beer market?
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Beer brands need economies of scale. MillerCoors’ new structure is the easiest way to compete against Anheuser-Busch. It’s much cheaper to send a single beer truck with multiple brands than multiple beer trucks to a single location. Advertising is cheaper when the ad buys are larger. And the beer business is very price sensitive. Furthermore, beer is a mature market in the US, and given society’s negative attitudes towards alcohol (restrictions against consumption under age 21, for example), it’s unlikely the market will suddenly start growing fast. All around the world, in country after country, brewing tends to be an oligopoly with very few players, if not a monopoly.
This is certainly a win/win for MillerCoors and should prove to be a great move as they take advantage of the economies of scale. Merging the two, in order to get this advantage is and will be a tremendous challenge but if executed well will definitely improve the opportunity for success. I don’t think this partnership will increase the beer prices for consumers. There will still be a highly competitive market between AB and MC.
The economies of scale argument holds…but only to a point. If AB has been successful–at the brand level–holding off both competitors, there’s no reason to expect that combining Coors and Miller will make the brands necessarily more attractive to consumers. So, the question will come down to–is beer a “push” or a “pull” category? I guess we’ll find out soon.
First, I like this deal. It will be good for MillerCoors and good for competition. But there are significant strategic pitfalls in thinking that AB’s #1 asset is their 50 share. The strategic assets are what got them to the 50 share in the first place. Great products, great marketing and a fantastic distributor management capability.
Parts of the commentary from the experts quoted in Tom’s discussion remind me of the thread we had on the demise of Wal-Mart the other day. Scale is a result–not a reason. Sure, it helps to negotiate better deals once you have it, but many a giant has fallen when the next generation of management assumes the scale itself is the “sustainable competitive advantage.” Even greater are the number of mergers who’s primary strategy was “to build scale.” A bunch of so-so brands and managers are no more effective together than they are apart.
Fortunately, MillerCoors doesn’t look like that sort of merger. The opportunities to delete redundant functions and activities are very real. And the opportunity to increase the revenue and viability of the “winning” distributor in dual distributor markets is also very real. Now let’s see which company is better able to adapt to consumers’ march to craft beverages in general.
I think this is good for Miller and Coors, because of the power of negotiation they will have with the advertising media; but for consumers, I really don’t think it will have any benefit.
Seems like this merger, if completed, will offer an opportunity to streamline distribution above all. Fewer trucks with shorter routes and more in-store clout. Possibly some consolidation of redundant distributorships.
Efficiencies in brewery operations are a little less clear to me. Perhaps Coors product bottled in the East at facilities now owned by Miller would allow shorter shipping distances. But would the same plants pump out both brands in parallel or on alternate days?
There would no doubt be a little more clout in media purchases, but since the brands themselves are not consolidating, the scales of a Coors campaign or a Miller Lite campaign, for example, are not likely to be affected much.
At the wholesaler level, this may not amount to the economies of scale the first poster noted. In many states, the brands will remain with the present distributor, some may already be combined houses, others not. Certainly there will be pressure from the new company to consolidate brands within markets, but with that pressure, those holding the brands will be able to overvalue them knowing they now have a highly motivated suitor. Some will depend on state law, you could see successful wholesalers lose their core brands when the brewery decides they want another company to be 100% MillerCoors if the laws of that state allow such actions to happen. Those wholesalers still carrying MillerCoors items will also face the prospect of having the same brewery rep calling on them who is also calling on their competitor, and a reluctance to work with them as a result.
It will be an interesting time; I think AB will be the big winner initially.
A big part of Coors cachet was its status as a Western icon–remember the brewha (pun intended) when Paul Newman used to “smuggle” Coors? That diminished as Coors became nationally distributed, and this seems to further the trend: it’s well on its way to becoming just another label (albeit the one with the worst commercials.)
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Beer brands need economies of scale. MillerCoors’ new structure is the easiest way to compete against Anheuser-Busch. It’s much cheaper to send a single beer truck with multiple brands than multiple beer trucks to a single location. Advertising is cheaper when the ad buys are larger. And the beer business is very price sensitive. Furthermore, beer is a mature market in the US, and given society’s negative attitudes towards alcohol (restrictions against consumption under age 21, for example), it’s unlikely the market will suddenly start growing fast. All around the world, in country after country, brewing tends to be an oligopoly with very few players, if not a monopoly.
This is certainly a win/win for MillerCoors and should prove to be a great move as they take advantage of the economies of scale. Merging the two, in order to get this advantage is and will be a tremendous challenge but if executed well will definitely improve the opportunity for success. I don’t think this partnership will increase the beer prices for consumers. There will still be a highly competitive market between AB and MC.
The economies of scale argument holds…but only to a point. If AB has been successful–at the brand level–holding off both competitors, there’s no reason to expect that combining Coors and Miller will make the brands necessarily more attractive to consumers. So, the question will come down to–is beer a “push” or a “pull” category? I guess we’ll find out soon.
First, I like this deal. It will be good for MillerCoors and good for competition. But there are significant strategic pitfalls in thinking that AB’s #1 asset is their 50 share. The strategic assets are what got them to the 50 share in the first place. Great products, great marketing and a fantastic distributor management capability.
Parts of the commentary from the experts quoted in Tom’s discussion remind me of the thread we had on the demise of Wal-Mart the other day. Scale is a result–not a reason. Sure, it helps to negotiate better deals once you have it, but many a giant has fallen when the next generation of management assumes the scale itself is the “sustainable competitive advantage.” Even greater are the number of mergers who’s primary strategy was “to build scale.” A bunch of so-so brands and managers are no more effective together than they are apart.
Fortunately, MillerCoors doesn’t look like that sort of merger. The opportunities to delete redundant functions and activities are very real. And the opportunity to increase the revenue and viability of the “winning” distributor in dual distributor markets is also very real. Now let’s see which company is better able to adapt to consumers’ march to craft beverages in general.
I think this is good for Miller and Coors, because of the power of negotiation they will have with the advertising media; but for consumers, I really don’t think it will have any benefit.
Seems like this merger, if completed, will offer an opportunity to streamline distribution above all. Fewer trucks with shorter routes and more in-store clout. Possibly some consolidation of redundant distributorships.
Efficiencies in brewery operations are a little less clear to me. Perhaps Coors product bottled in the East at facilities now owned by Miller would allow shorter shipping distances. But would the same plants pump out both brands in parallel or on alternate days?
There would no doubt be a little more clout in media purchases, but since the brands themselves are not consolidating, the scales of a Coors campaign or a Miller Lite campaign, for example, are not likely to be affected much.
At the wholesaler level, this may not amount to the economies of scale the first poster noted. In many states, the brands will remain with the present distributor, some may already be combined houses, others not. Certainly there will be pressure from the new company to consolidate brands within markets, but with that pressure, those holding the brands will be able to overvalue them knowing they now have a highly motivated suitor. Some will depend on state law, you could see successful wholesalers lose their core brands when the brewery decides they want another company to be 100% MillerCoors if the laws of that state allow such actions to happen. Those wholesalers still carrying MillerCoors items will also face the prospect of having the same brewery rep calling on them who is also calling on their competitor, and a reluctance to work with them as a result.
It will be an interesting time; I think AB will be the big winner initially.
A big part of Coors cachet was its status as a Western icon–remember the brewha (pun intended) when Paul Newman used to “smuggle” Coors? That diminished as Coors became nationally distributed, and this seems to further the trend: it’s well on its way to becoming just another label (albeit the one with the worst commercials.)